Ben Hills, Herald Correspondent
Tokyo, Thursday: He sat, day after day, hour after hour, at a table in a conference room of the Chubu Power and Electric Company, in the gritty industrial city of Nagoya, wearing his salaryman’s uniform of dark suit and tie.
Kouhachi Ogata’s business card describes him, modestly, as the company’s deputy general manager (fuels department) – but this doesn’t fool the procession of Australian coal barons who come each year to pay their respects.
Mr Ogata is the Japanese power industry’s kanji kaisha – its “champion negotiator”. He holds in his hands a big piece of Australia’s most valuable export commodity, the financial fate of our largest mines, and the jobs of tens of thousands of workers.
“He is a very good negotiator … very, very patient,” says a veteran Australian bargainer who has done business with Mr Ogata and his predecessors for a decade. “Even if they invite you to dinner it is not a backslapping affair … (it is) very tactical, and the stakes are very high.” Mr Ogata was nominated last year to head negotiations for the nine Japanese power companies which rely on Australia for nearly 70 per cent of their coal. Together with the steel mills, they will buy about $4 billion worth this year, mostly from the great open-cut mines of Queensland and NSW. This is as much as Australia’s wool and wheat crops put together.
Mr Ogata is the human face of the Japanese coal-buyers’ cartel that has driven Australian miners to three major strikes since October. The mine union president, Mr John Maitland, claims that the Australian negotiators behave”like a rabble without a coach” when they meet him, that the cartel would be illegal in Australia, and that Australia has been “ripped off” to the tune of$32 billion over the past 20 years.
Mr Ogata, say the Japanese, is simply doing his job, which is to screw every cent he can out of the Australian producers. A single cent cut from the price can mean a saving of $700,000 for Japanese industry – and a loss of$700,000 to Australia.
It is the highest-stakes poker game in the world.
Last year the champion negotiator played his hand so well that prices were forced down, for the fifth year in a row, to their lowest levels in recent history – less than half the $100 a tonne Australia was getting a decade ago. This cut $250 million off the country’s export earnings.
The miners’ union marched on Parliament House, demanding that the Federal Government intervene to block the sale. The Government set up a committee to investigate. The Resources Minister, Mr Beddall, told the Japanese power companies earlier this month that the price was so low it would stop investment in Australian coal mines, and threaten their supplies in future years.
There is no doubt the champion negotiator system stacks the odds in Japan’s favour. The last round of talks began, as usual, last October with nothing so crude as a price on the table – the Japanese steel mill owners, with exquisite politeness, begged the Australians to “please understand our difficult situation” – still mired in the longest recession since the war, the five major steelmakers were heading for record losses exceeding $4 billion.
Towards Christmas, the pace began to quicken. The bargaining by the steel mills for a price for “coking coal” – the kind used in blast furnaces -traditionally comes first, and sets the pace not only for the Japanese steel industry, but for every coal contract signed around the world in the following year.
The chief negotiator for these talks was Mr Keigo Takahashi, general manager of Nippon Steel, the world’s biggest steel-maker. One by one the Australian negotiators trooped into his room at the genryoiin-kai, the “raw materials committee”, which is housed in a skyscraper not far from Japan’s imperial palace.
About 20 companies are vitally affected by the talks, led by the giants of the industry – BHP, CRA, Oakbridge, Arco, MIM and Shell. Giants by Australian terms, that is – Nippon Steel is about four times the size of BHP’s steel operation, and makes about 14 per cent of all the steel in the world.
“What you have to understand is that this is a volume market,” says an Australian official. “If you increase production from, say, five to seven million tonnes, you might only increase costs 5 per cent. So everybody wants tonnage – even if it is a trade-off against price.
“It’s a buyer’s market,” says this source. “The Japanese sit there – they are extremely disciplined negotiators – and with a stroke of a pen they can shove your company into the red or the black. The Australians sit opposite with a big axe hanging over their heads – it’s a big temptation to accept a cut to keep your market share and your profitability.”
This year the talks dragged on into January. The Japanese had an ace up their sleeves. The Canadians, Japan’s second-biggest coal supplier, had opened their bidding with a pre-emptive “king hit”, offering the Japanese a dramatic cut of about $US3 a tonne – in exchange for long-term contracts to underwrite the development of a new “greenfields” mine in British Columbia.
Faced with this dutch auction, it was BHP which blinked first.
Its negotiators finally offered to undercut the opening Canadian bid by nearly $US1, setting a world-wide benchmark of $US45.45 a tonne, the lowest in history.
“BHP had a choice,” says the source. “Let the Canadians take two or three or four million tonnes and send them into the red, or defend their turf. It’s all right for people in Australia to say they are a rabble, but I know these negotiations were tough and bloody, and in the end they got the best deal they could.”
The second round of talks for the “steaming coal” contracts – the kind that’s used in power-stations – were equally hard-fought. Mr Ogata, the champion negotiator, kept the Australians tied up in two or three sessions a day as the deadline of April 1 (the start of the Japanese financial year)loomed closer.
“Traditionally there is a nexus between the coking-coal and the steaming coal prices,” says the source. Like everyone involved in the talks he insisted on anonymity – security is so tight that a journalist specialising in the coal industry remembers ringing a dozen Tokyo hotels one night just trying to find where the negotiators were staying.
“But this year, the Japanese power utilities were horrified at the (coking coal) price cut. They have a different set of priorities – they are awash in cash, and their priority is continuity of supply. Above all, the lights must not go out – Japan is still traumatised by the oil shocks of the 1970s.”
Eventually, just hours before the midnight deadline, Mr Ogata shook hands on a deal that broke the price linkage between the two types of coal. Suppliers of Japan’s power-generating coal would have a price cut of as little as 2 per cent – compared with a swingeing 8 per cent cut for coking coal.
Although these prices will – all concerned agree – send some less efficient mines into the red, they guarantee Australia’s stake in an export market that is projected to double by 2002.
So could we have got a better deal by ganging up – as the union suggests -in our own seller’s cartel, like the producers of diamonds or cocoa-beans? “In the short term, maybe,” says the source, “but once the Japanese see Australia as a kind of coal OPEC, forcing up the prices and taking the Japanese to the wire every year, it wouldn’t take long before they went to other countries, and invested more in other energy sources like nuclear power.”
Says a journalist from the Tex Report – coal is so important to the Japanese economy that they have one faxed newsletter and three magazines devoted entirely to it: “Australia always gets the best deal in the world from Japan – it is way over the spot (market) price, and higher than any other country.
“If they (the Australian negotiators) push too hard, we can move quite quickly to increase imports from Canada, Indonesia or China …”
“In any case,” he says, “watch next year’s negotiations,” which will be orchestrated by a new champion negotiator, a man from the Tohoku power company in eastern Honshu, which should at least give the harried Australians a change of scenery.
“The price is certain to go up.”
Pub: Sydney Morning Herald
Pub date: Friday 12 August 1994
Section: News and Features
Word count: 1529
Cartoon: Cathy Wilcox